EDMONTON, Alberta – Capital Power Corporation (Capital Power, or the Company) (TSX: CPX) today released its financial results for the fourth quarter and year ended December 31, 2011. Funds from operations (FFO), excluding non-controlling interests in Capital Power Income L.P. (CPILP), were $88 million in the fourth quarter of 2011, up 13% from $78 million in the fourth quarter of 2010. Cash flow per share for the quarter was $0.90, compared with $0.97 for the same quarter in the previous year. Normalized earnings attributable to common shareholders in the fourth quarter of 2011, after adjusting for one-time items and fair value adjustments, were $20 million, or $0.36 per share, compared with $5 million, or $0.21 per share, in the comparable period in 2010.
For the full year ended December 31, 2011, FFO excluding non-controlling interests in CPILP increased 27% to $352 million, compared with $277 million in the year ended December 31, 2010. Cash flow per share for the year increased 10% to $3.89. Normalized earnings attributable to common shareholders were $55 million, or $1.24 per share, compared with $31 million, or $1.40 per share, in the previous year.
“Capital Power’s fourth quarter financial results underlined the strong cash flow generation from our facilities that was evident throughout the year,” said Brian Vaasjo, President and CEO of Capital Power. “We were particularly pleased to achieve a 10% year-over-year gain in cash flow per share in light of the unplanned outage at Genesee 3. During the outage we successfully deployed our Clover Bar Energy Centre peaking facility to partly offset lost production, and with the added contribution from Keephills 3 we delivered full-year plant availability of 92% and met our expectations for full year and fourth quarter normalized earnings.”
“Overall, the Company reported financial results for 2011 that exceeded the majority of our financial targets,” added Mr. Vaasjo. “In addition to FFO and cash flow per share, the Company met normalized EPS targets and generated substantial discretionary cash flow, with a dividend coverage ratio of 2.1 times consistent with our target.”
“In November, we completed the divestiture of our interest in CPILP, simplifying our structure and operations through a more focused geographic footprint and operation of fewer technologies,” concluded Mr. Vaasjo. “Looking ahead to 2012, we expect the continued execution of our strategy to produce visible, substantial and growing cash flow. We expect to benefit from a full-year’s contribution from Keephills 3 and the initial commercial operations of two wind projects, with further upside potential from the impact of rising Alberta power prices on our unhedged positions. Shareholders can also benefit from participation in our new Dividend Reinvestment Plan, which begins with the first quarter 2012 cash dividend.”
|Operational and Financial Highlights(1) (unaudited)||Three months ended
|Twelve months ended
|(millions of dollars except per share and operational amounts)||2011||2010||2011||2010|
|Electricity generation (excluding acquired Sundance PPA and CPILP plants) (GWh)||3,780||2,556||13,659||9,205|
|Generation plant availability (excluding acquired Sundance PPA and CPILP plants) (%)||87%||91%||92%||90%|
|Revenues and other income||$407||$435||$1,770||$1,762|
|Normalized earnings attributable to common shareholders(2)||$20||$5||$55||$31|
|Normalized earnings per share(2)||$0.36||$0.21||$1.24||$1.40|
|Net income (loss) attributable to shareholders||$84||$(3)||$77||$17|
|Earnings (loss) per share||$1.47||$(0.13)||$1.60||$0.77|
|Dividends declared per common share||$0.315||$0.315||$1.26||$1.26|
|Funds from operations(2)||$99||$98||$433||$374|
|Funds from operations excluding non-controlling interests in CPILP(2)||$88||$78||$352||$277|
|Cash flow per share(2)||$0.90||$0.97||$3.89||$3.53|
|Dividend coverage ratio(2)||1.2||1.8||2.1||2.1|
(1) The operational and financial highlights in this press release should be read in conjunction with Management’s Discussion and Analysis and the audited Consolidated Financial Statements for the year ended December 31, 2011.
(2) Earnings before finance expense, income tax expense, depreciation and amortization, impairments, foreign exchange losses, and gains on acquisitions and disposals (EBITDA), Funds from operations, Funds from operations excluding non-controlling interests in CPILP, Cash flow per share, and Dividend coverage ratio, Normalized earnings attributable to common shareholders, and Normalized earnings per share are non-GAAP financial measures and do not have standardized meanings under GAAP, and therefore, may not be comparable to similar measures used by other enterprises. See Non-GAAP Financial Measures. Reconciliations of these non-GAAP financial measures to Net income attributable to shareholders, Earnings per share and Net cash flows from operating activities are included in the Company’s Management’s Discussion and Analysis dated March 13, 2012, which is available under the Company’s profile on SEDAR at www.SEDAR.com.
Maintenance outage at Genesee 3
On November 11, 2011, the Genesee 3 plant experienced an unplanned outage that resulted in damage to the turbine/generator bearings and rotor. An interim root cause failure report indicated that the damage was due to an electrical design issue. The unit underwent repairs and was returned to service on January 15, 2012. Incremental repair expenses, net of insurance recoveries, of $2 million were incurred. Additional generation from the Company’s Clover Bar Energy Centre peaking facility offset some of the lost production from the Genesee 3 facility.
$224 million secondary offering of Capital Power common shares by EPCOR
In November 2011, a subsidiary of EPCOR exchanged 9,200,000 of its exchangeable limited partnership units in CPLP for common shares of Capital Power on a one-for-one basis and sold 9,200,000 common shares of Capital Power to the public pursuant to a secondary offering at $24.40 per common share. Capital Power did not receive any of the approximate $224 million of proceeds from EPCOR’s sale of common shares. This transaction reduced EPCOR’s ownership interest in CPLP to approximately 39% from its interest of approximately 49% at September 30, 2011 and reduced EPCOR’s indirect ownership of the common shares of Capital Power on a fully diluted basis to 39% from 49%. EPCOR has advised the Company that it intends to sell all or a portion of its remaining interest in Capital Power subject to market conditions and its requirement for capital in the future.
Closing of Atlantic Power Corporation’s acquisition of CPILP
In November 2011, Atlantic Power Corporation (Atlantic Power) acquired all of the outstanding limited partnership units of CPILP, including Capital Power’s ownership interest in CPILP. In connection with the transaction, Capital Power acquired CPILP’s Roxboro and Southport plants in North Carolina (North Carolina assets) for $121 million. This reduced the number of outstanding limited partnership units of CPILP held by the Company by approximately 6.3 million units. Atlantic Power acquired CPILP and its remaining eighteen facilities outside of North Carolina. Upon closing, Capital Power received $314 million in combined consideration for its ownership interest in CPILP. The consideration included $48 million of stock in Atlantic Power, $145 million of cash and $121 million of North Carolina assets described above. In addition, the Company’s management and operations contracts with CPILP were terminated or assigned for consideration of $10 million.
As of June 30, 2011, the Company tested the CPILP net assets and management and operations contracts for impairment at the cash generating unit level, by comparing their recoverable amounts with their carrying amounts. The negotiated consideration for these assets less an estimate for disposal costs was used as the estimated recoverable amount. As a result, the management and operations contracts were determined to be impaired and an impairment loss of $43 million was recorded in the second quarter of 2011. The carrying amounts of the disposal group of assets and liabilities, after recognizing the impairment loss, were reclassified as assets and liabilities held for sale commencing with the Company’s statement of financial position as at June 30, 2011. The Company recognized a total pre-tax gain of $89 million, net of legal and other disposal costs of $10 million, for the difference between the net proceeds received in November 2011 and the carrying amount of the Company’s interest in CPILP net assets classified as assets held for sale.
Upon close of the disposal transactions, accumulated other comprehensive income included accumulated losses of $21 million relating to the Company’s investment in CPILP, which included $11 million of losses related to foreign currency translation losses that were previously recognized directly in accumulated other income. All accumulated other comprehensive losses relating to the Company’s interest in CPILP were reclassified to net income as a deduction in arriving at the gain on disposal.
Sale of Taylor Coulee Chute
On November 1, 2011, in conjunction with Capital Power’s corporate strategy to divest its interest in hydro facilities, the Company sold its interest in Taylor Coulee Chute to TransAlta Corporation (TransAlta) for total proceeds of $8 million. A pre-tax gain of $4 million was recorded upon disposal.
Keephills 3 power plant begins commercial operation
On September 1, 2011, the Company and TransAlta completed the 495 MW (gross) Keephills 3 generating facility, which is now in commercial operation. The facility is the most technologically advanced coal-fired plant in Canada and the Company’s share of the plant’s final cost was $949 million. Costs for the plant, excluding mine capital, are being equally shared by its owners; Capital Power, which led the construction, and TransAlta, which operates the plant.
Development of K2 Wind Ontario project
On August 3, 2011, CPLP closed a limited partnership agreement with Samsung Renewable Energy Inc. (Samsung) and Pattern Renewable Holdings Canada ULC (Pattern) for the development, construction and operation of a 270 megawatt (MW) wind power project named K2 Wind Ontario (K2). Formerly referred to as the Kingsbridge II Wind Power Project, K2 will be developed in the Township of Ashfield-Colborne-Wawanosh in southwestern Ontario. The project has an expected total capital cost of $874 million, most of which will be funded through project financing.
The Ontario Power Authority has signed a power purchase arrangement (PPA) for K2. The completion of the project is subject to receiving regulatory approvals. The partners expect that construction would begin in 2013, with commercial operation in 2014.
At commencement of commercial operation, each of the three partners will have an equal economic interest in the project. Capital Power will contribute the project lease agreements and development work completed to August 3, 2011, while Samsung and Pattern will contribute the PPA and transmission access rights. Capital Power will continue to lead the provincial Renewal Energy Approval process for the project. Samsung will serve as the engineering procurement and construction contractor, and the K2 partnership will finalize the turbine model and supplier.
$231 million common share offering
In July 2011, the Company closed an offering to sell 9,200,000 common shares at a price of $25.10 per share to a syndicate of underwriters for gross proceeds of $231 million less underwriters’ fees of approximately $9 million. The net proceeds from the common share offering were used to purchase an additional 9,200,000 common limited partnership units of CPLP. CPLP used the funds to repay a portion of the indebtedness outstanding under its credit facilities, which was drawn to fund the acquisitions of the New England facilities described below, and for general corporate purposes including financing development projects and working capital requirements.
US$295 million private placement of senior notes
On June 15, 2011, Capital Power U.S. Financing LP, an indirect subsidiary of CPLP, announced that it had closed a US$295 million private placement of senior notes. The net proceeds from the transaction were used to repay a portion of the debt outstanding under its credit facilities, which was drawn to fund the acquisitions of the New England facilities described below, and for general corporate purposes.
The senior notes consist of two notes with 10-year and 15-year terms. The 10-year senior note has a principal amount of US$230 million that matures in May 2021 with a coupon rate of 5.21%. The 15-year senior note has a US$65 million principal amount and matures in May 2026 with a coupon rate of 5.61%.
Acquisition of Halkirk Wind Project
In June 2011, CPLP announced that it had acquired 100% of Halkirk I Wind Project LP and Halkirk I Wind Project Ltd. from Greengate Power Corporation for $33 million. The assets of the acquired entities were comprised of intangible assets including various permits and land lease rights required to construct the Halkirk Wind Project (Halkirk), and a 20-year purchase and sale agreement for the sale of renewable energy credits to a third party. Halkirk is a 150-MW wind farm located in east central Alberta, which Capital Power will build, own and operate. All approvals and permits from the Alberta Utilities Commission (AUC) and Alberta Environment are in place for the Capital Power facility. The AUC permit for the high voltage transmission and substation interconnection is expected in the first quarter of 2012.
Commercial operation is expected in the last quarter of 2012 and the total cost of the project, including the $33 million acquisition cost, is expected to be approximately $357 million. The project is expected to be on average, neutral to the Company’s annual earnings per share over the first five years of operations. Halkirk will earn revenues from the sale of energy into the Alberta spot market, and from the sale of renewable energy credits under the 20-year fixed-price PPA. Approximately 40% to 45% of Halkirk’s revenue is expected to come from the sale of renewable energy credits and the project has a favourable after-tax internal rate of return over the projected life of its assets.
Halkirk will incorporate 83 turbines to be supplied by Vestas Canadian Wind Technology Inc., the same technology to be used at Capital Power’s Quality Wind project in British Columbia and Port Dover & Nanticoke project in Ontario.
Acquisition of three New England power plants
On April 28, 2011, CPLP acquired 100% of the equity interests in Bridgeport Energy, LLC, which owns the Bridgeport Energy facility (Bridgeport), for $346 million (US$363 million) including a working capital adjustment of $8 million (US$8 million). Bridgeport is a natural gas-fired combined cycle power generation plant located in Bridgeport, Connecticut, with a net winter capacity of 540 MW.
On April 29, 2011, CPLP acquired 100% of the equity interests in Rumford Power Inc. and Tiverton Power Inc. (Rumford and Tiverton) which own generating facilities located in Rumford, Maine and Tiverton, Rhode Island. Both plants are natural gas-fired combined cycle power generation facilities serving the New England region in the North East U.S., and have a maximum combined capacity of 549 MW. The purchase price was $299 million (US$315 million).
All three plants are merchant facilities and sell their output into the New England Power Pool (NEPOOL). Their revenues are expected to include payments for capacity, energy, and ancillary services at market-based rates.
$300 million debt offering
On April 18, 2011, CPLP completed a public offering of $300 million unsecured medium-term notes. The notes have a coupon rate of 4.6%, are payable semiannually commencing on June 1, 2011, and mature on December 1, 2015. The net proceeds of the offering were used for general corporate purposes including repayment of amounts owing under credit facilities, short-term investment, financing of ongoing capital projects and working capital requirements.
$232 million common share offering
In March 2011, the Company issued and sold 9,315,000 common shares at a price of $24.90 per share to a syndicate of underwriters for gross proceeds of $232 million less issue costs of $9 million. The net proceeds from the common share offering were used to repay a portion of the outstanding indebtedness under the Company’s credit facilities.
On February 10, 2012, the Company completed the sale of its shares in Atlantic Power, which were acquired in November 2011 as part of the Atlantic Power acquisition of CPILP, for proceeds of $52 million on a bought deal basis. These shares were initially recorded at $48 million and subsequently adjusted to their fair value of $53 million as of December 31, 2011 resulting in a gain of $5 million recognized in 2011. From the date of acquisition to the date of disposal, the expected realized pre-tax gain on disposal will be approximately $4 million with cash income taxes estimated to be $1 million.
On February 21, 2012, CPLP completed a public offering of $250 million unsecured medium-term notes. The notes have a coupon rate of 4.85%, are payable semiannually commencing on August 21, 2012 and mature on February 21, 2019. The net proceeds of the offering are expected to be used for repayment of amounts owing under credit facilities, financing on ongoing capital projects, working capital requirements, and general corporate purposes.
On February 16, 2012, CPC filed a Canadian base shelf prospectus, which expires in March 2014, under which it may raise up to $2 billion collectively in common shares of the Company, preferred shares of the Company and subscription receipts exchangeable for common shares and/or other securities of the Company.
Dividend Reinvestment Plan
The Company announced the launch of a Dividend Reinvestment Plan (the Plan) effective January 1, 2012. Eligible shareholders may elect to participate in the Plan commencing with the Company’s first quarter 2012 cash dividend. The Plan will provide eligible shareholders with an alternative to receiving their quarterly cash dividends. Under the Plan, eligible shareholders may elect to efficiently and cost-effectively accumulate additional shares in the Company by reinvesting their quarterly cash dividends on the applicable dividend payment date in new shares issued from treasury. The new shares purchased with reinvested dividends will be bought at 95 per cent of the average market price. No commissions, service charges or similar fees will be payable in connection with the purchase of shares from treasury under the Plan. All administrative costs of the Plan will be paid by the Company. Shareholders who wish to participate in the Plan indirectly through the brokers, investment dealers, financial institutions or other similar nominees through which their shares are held should consult such nominees to confirm whether commissions, service charges or similar fees are payable.
Analyst Conference Call and Webcast
Capital Power will be hosting a conference call and live webcast with analysts on March 14, 2012 at 1:00 pm (ET) to discuss fourth quarter results. The conference call dial-in numbers are:
(403) 532-5601 (Calgary)
(604) 681-8564 (Vancouver)
(416) 623-0333 (Toronto)
(855) 353-9183 (toll-free from Canada and USA)
Participant access code for the call: 21543#
A replay of the conference call will be available following the call at: (855) 201-2300 (toll-free) and entering conference reference number 764919# followed by participant code 21543#. The replay will be available until midnight on April 16, 2012.
Interested parties may also access the live webcast on the Company’s website at www.capitalpower.com with an archive of the webcast available following the conference call.
Non-GAAP Financial Measures
The Company uses (i) EBITDA, (ii) funds from operations, (iii) funds from operations excluding non-controlling interests in CPILP, (iv) cash flow per share, (v) dividend coverage ratio, (vi) normalized earnings attributable to common shareholders, and (vii) normalized earnings per share as financial performance measures. These terms are not defined financial measures according to GAAP and do not have standardized meanings prescribed by GAAP, and therefore may not be comparable to similar measures used by other enterprises. These measures should not be considered alternatives to net income, net cash flows from operating activities or other measures of financial performance calculated in accordance with GAAP. Rather, these measures are provided to complement GAAP measures in the analysis of the Company’s results of operations from management’s perspective. Reconciliations of EBITDA to net income, funds from operations and funds from operations excluding non-controlling interests in CPILP to net cash flows from operating activities, normalized earnings attributable to common shareholders to net income attributable to common shareholders, and normalized earnings per share to earnings per share are contained in the Company’s Management’s Discussion and Analysis dated March 13, 2012 for the year ended December 31, 2011 which is available under the Company’s profile on SEDAR at www.SEDAR.com.
Forward-looking information or statements included in this press release are provided to inform the Company’s shareholders and potential investors about management’s assessment of Capital Power’s future plans and operations. This information may not be appropriate for other purposes. The forward-looking information in this press release is generally identified by words such as will, anticipate, believe, plan, intend, target, and expect or similar words that suggest future outcomes.
Material forward-looking information in this press release includes information with respect to: (i) expectations related to execution of strategy, (ii) expectations related to recently completed projects and projects under development, and (iii) expectations regarding impact of power prices.
These statements are based on certain assumptions and analyses made by the Company in light of its experience and perception of historical trends, current conditions and expected future developments, and other factors it believes are appropriate. The material factors and assumptions used to develop these forward-looking statements relate to: (i) electricity and other energy prices, (ii) performance, (iii) business prospects and opportunities including expected growth and capital projects, (iv) status and impact of policy, legislation and regulation, and (v) effective tax rates.
Whether actual results, performance or achievements will conform to the Company’s expectations and predictions is subject to a number of known and unknown risks and uncertainties which could cause actual results and experience to differ materially from the Company’s expectations. Such material risks and uncertainties are: (i) power plant availability and performance including maintenance expenditures, (ii) changes in electricity prices in markets in which the Company operates, (iii) regulatory and political environments including changes to environmental, financial reporting and tax legislation, (iv) acquisitions and developments including timing and costs of regulatory approvals and construction; (v) ability to fund current and future capital and working capital needs, (vi) changes in energy commodity market prices and use of derivatives, (vii) changes in market prices and availability of fuel, and (viii) changes in general economic and competitive conditions. See Risks and Risk Management in the Company’s Management’s Discussion and Analysis dated March 13, 2012 for further discussion of these and other risks.